For Goldman Sachs, M&A saves the day

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In the never-ending war for Wall Street supremacy, Morgan Stanley seems to have all the momentum against Goldman Sachs. This year its market cap finally caught up to Goldman's and its pivot to ostensibly stable wealth management has paid off as soft bond trading conditions have hammered Lloyd Blankfein's firm.

But on Tuesday, Goldman roared back with a strong third quarter (MS's was good too) driven by its corporate dealmaking businesses. Goldman reported a whopping $911m in advisory revenue, up 38 per cent year over year (it cited the closings of such deals as Dow/DuPont and GE/Baker Hughes).

So far in 2017, it has brought home $2.4bn in M&A fees, 50 per cent more than Morgan Stanley, whose YTD deal fees are marginally down compared to a year ago.

In June, the FT published a study of sellside fees that dug deep into Goldman's dominance of corporate boardrooms. We spoke to Goldman bankers who told us of the extreme pressure to stay on top as the profitability of other business lines slips in the post-crisis world.

The M&A business is under more pressure than ever at 200 West Street as bond trading has been in a prolonged slump and Goldman is trying to re-orient that unit to better serve corporate clients. Reuters had an interesting story last week about how Goldman has created a new group within the investment banking division that is tasked with brainstorming on unusual acquisitions or structures.

As Lex said, it's impressive that Goldman and MS have found new businesses to make up for the shortfall in fixed income trading. But whether it's M&A, private equity, or wealth management, these businesses are all still hitched to the market. At some point there will be a correction and its going to sting.

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UK government intervention in M&A

Ever since she became prime minister, Theresa May has talked a big game about doing more to protect UK companies from foreign bidders. A year and some months into her reign, we are finally getting a sense of what that means.

First, the UK's Takeover Panel introduced changes that will force buyers of publicly listed UK companies to report back one year after completing their acquisitions on whether they have kept their word about their plans for the target group. We detailed those changes here last month, which it seems were prompted by the intervention of May's business secretary Greg Clark.

Now, like a lot of other western countries, the UK government says it wants the power to block the acquisition of smaller defence and technology companies by overseas buyers if there are national security concerns.

Read our story on the proposals here. The plans also include calls for “change of control” clauses to be inserted into government funding to enable money to be clawed back in some circumstances if a recipient is bought.

You can delve into the nitty-gritty in our story and the text of the proposal, but for the tl;dr crowd, it all sounds to DD like a lot of bark, but limited bite, especially as several of the country's tech jewels have already been sold off. That said, the government said it was also consulting during the next three months on “longer-term proposals” to widen the type of deals that may raise national security concerns.

PE in Japan: Here to stay?

Private equity deal value has already hit a record high in Japan this year at about $24bn, smashing the previous record of $13.3bn in 2008. That figure has been driven largely by Bain Capital’s buyout of Toshiba’s chip business, which accounted for $17.7bn of the total.

But the dizzying number for 2017 (it sounds even bigger when expressed in yen, at ¥2.55tn) doesn’t mean 2018 will look as nice.

Between 2009 and 2015, PE in the developed East Asian market seemed to have fallen asleep, a report from Bain & Company showed. In 2015, interest from financial sponsors fell to more than a decade low, with deal value crashing to just $2.6bn.

All that has changed over the past two years with some global private equity houses taking a renewed interest in the country. PE deals for 2016 leapt to $8.8bn. KKR did much of that work, buying Calsonic Kansei for $4.5bn.

The trend, including the Toshiba sale, is part of a wave of large conglomerates hiving off massive chunks of their businesses.

“Japan’s deal environment benefited from an uptick in corporate divestitures in 2017 that, to date, account for more than half of large deals and 90 per cent of deal value,” said Jim Verbeeten, Bain & Co’s private equity head in Japan.

There is a downside to some of this activity, however. The Toshiba case has demonstrated just how difficult a transaction such as this can be in the Japanese market and has left the sour taste of bad regulation and corporate governance in the mouths of those close to the deal. (The scandal at Kobe Steel has not helped the country’s corporate image.)

That said, PE interest in Japan looks like it will continue into 2018. Elliott Management boosted its stake in Hitachi Kokusai Electric to above 8 per cent last week just as KKR raised its offer for the chipmaking equipment manufacturer.

Job moves

Barclays has hired HSBC banker Omar Faruqui as its new co-head of UK M&A. Faruqui will start in January and work alongside the bank's other UK co-head Derek Shakespeare. Faruqui had worked at HSBC since 2013 and served most recently as head of M&A origination. He has also worked at Deutsche Bank and Rothschild.
Honeywell named Brian Cook as its new global head of M&A late last week. The move came after Anne Madden was promoted from that position to become Honeywell's general counsel. Cook has worked at the industrial conglomerate since 2001.
Yves Romestan has joined French PR agency ComCorp as an executive vice-president. Romestan will be focused on helping ComCorp expand with a focus on the UK market. He was previously served in senior communications roles in Walgreens Boots Alliance and Alliance Boots.

Smart reads

Airbus/Bombardier jet deal Our sector experts break down the new aviation joint venture, while Lex declares that the transaction is of "such artful commercial malevolence, it deserves applause". Finally, an FT editorial is quite down on the protectionist battle unfolding between Boeing and Airbus. (FT, Lex, FT View)
The alpine activist Calls to break up banks are hardly new (ask JPMorgan), especially during times when a financial institution is struggling to perform. But that's not the case at Credit Suisse, which could make break-up demands by European activist fund RBR Capital somewhat ill-timed. (FT, WSJ)
Is Danone's chairman about to get the boot? Wednesday will be a big day for Franck Riboud, Danone's former chief executive. Lex takes a look at how the company's recent run. (FT, Lex)
Is Amanda Staveley about to buy Newcastle United? Honestly, who knows? But we've tried to answer the question of what happens with the Mike Ashley-owned club. (FT)